Israel agreed to hand over about 20 Lebanese and 400 Palestinian prisoners in return for Israeli businessman Elhanan Tannenbaum and the bodies of three soldiers. But Mr Sharon specifically rejected releasing Kantar.

Mr Tannenbaum, who is also a reserve colonel in the Israeli army, was kidnapped by Hezbollah in 2000.

Israeli media said information on the fate of missing airman Ron Arad - shot down over Lebanon in 1986 - was also expected to be included under any deal.

'Evenly split'

Israel is holding about 20 Lebanese detainees, including Shia Muslim leaders Abdel Karim Obeid and Mustafa Dirani, who is reported to have been directly involved in Arad's capture.

Before the cabinet decision was taken, Mr Nasrallah had warned: "Any deal that excludes any
Lebanese prisoner will be refused and the exchange will not
happen."

The cabinet was almost evenly split on what has become one of the most divisive issues in Israel, says the BBC's David Chazan in Jerusalem.

He reports that the Israeli prime minister put his ministers under pressure to vote in favour, despite his stated policy of refusing to deal with those Israel considers terrorists.

The 11 ministers who voted against the German-mediated exchange argued that it could strengthen Hezbollah and encourage militants to kidnap more Israelis.